Wednesday, November 11, 2015

Free Money In China

Macquarie on Friday:We should know by now that trying to anticipate results on margin flows is truly a mug’s game. However, we’re still playing.

Credit Suisse on Monday running with a very similar theme, even if they don’t quite say so explicitly:

The resumption of IPOs [which were suspended in July amidst a crashing market] has come a bit earlier than market’s expectations, and has got some investors worried about the market being caught in a cross-correction as the stock supply would increase. However, we believe the upcoming IPOs will be positive for a market rebound because it will introduce more funds from individual investors to the market. These individual investors believe the upcoming IPOs will bring them ‘risk-free’ returns as usual—they will move their money from the money market and WMPs (wealth management products) to the equity market to chase better opportunities.

Err……bit confusing this since the suspension of IPOs was to stop a falling market while its resumption is apparently set to lift it up. As the WSJ does its best to explain: “Beijing has imposed nine IPO moratoriums since 1994—most recently in July—usually during periods of heavy stock-market losses. Typically, the objective is to block investors from selling current holdings in anticipation of new shares coming to the market, which can spark volatility. Beijing also has halted IPOs when it deemed the market was heating up too quickly.”

As an aside, etymologically speaking, so-called corporate solvency is directly connected to whether enterprises have the capacity to continue diluting themselves, while insolvency means they don’t. Which is a nice play on corporate health being directly connected to a corporation’s ability to issue stock which protects capital at least as well as currency....

I am reminded of one of the stories of the gold rushes, this one I think happened in Colorado. The original rush was on the eastern slope of the Rocky Mountains. A miner, tired of the competition decided to spread a rumor that gold had been discovered on the other side of the Rockies and as the rumor spread it was embellished and more and more of those who were finding nothing in the Pikes Peak area decided to cross the mountains and try their luck.

Finally, the original rumor monger announced to his remaining friends that he was joining the migration further west. One of the friends pointed out that he had started the tale to which he replied: "I dunno, the way these guys are acting there must be something to it".